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Why People Don't Save Enough

Recent developments caused by the Congress, the President, and the Supreme Court may have changed things for the country in a fundamental way. Having said that, some things never change.

The laws of economics are such things. And since the study of economics is fundamentally about how people respond to different stimuli and the choices they make because of them, a discussion about unchangeable things is appropriate now.

The following TV exchange took place recently and our friend Dan Mitchell posted this video on his blog, International Liberty, along with the accompanying excellent commentary concerning the points he made.

You can read the whole post here. My own comments can be found below the video.

Excellent points and well made. I would take this opportunity however to make an additional point which Dan possibly didn't have time to raise during a short TV spot. Or perhaps he disagrees and therefore didn't make the point purposely. (Dan has a PHD in economics and I got a "C" in high school Econ 101, so enough said about that.)

My point is:

Even in a low inflation environment (on a relative basis) the value of the currency has declined steadily and can be expected to deteriorate much more quickly in the future as the velocity of money movement causes the Fed’s printing to cause a much more virulent inflationary cycle.

That money devaluation does not encourage saving, but rather consumption, as people realize that the value of their savings is declining faster than the paltry interest earnings can keep pace with.

It’s only one more way that the government has changed the culture for average Americans and encouraged financial behavior that is deleterious for them over the longer term.

(I’m not an economist, but I sometimes pretend I am one on this blog.)

1 comment:

Anonymous said...

Another excellent video with Dan Mitchell. I have to agree with both men. My generation and, at leat, half of the baby-boomers had parents that lived through the depression and WWII. I have to believe that, like me, they listened to countless hours of the hard times their parents lived through and how important it was to be frugal and to save for whatever the future might bring. Maybe it is the other half of the baby-boomers that didn't get that indoctrination that are the spendthrifts?